Best Buy Cancels Christmas Orders, Causes Consumer and Analyst Backlash

File photo of Best Buy logo seen at a store in Toronto.
Sales at stores open at least 14 months fell 1.2 percent in December, while total revenue in the month was $8.4 billion, about the same as last year. REUTERS

With three days to go until Christmas and Hanukkah already underway, Best Buy (NYSE:BBY) assured it won't be on many customers' nice lists this season.

On Thursday, the national consumer electronics retailer notified a fraction of its online customers that it would not be able to complete their online orders -- some of which were placed in November -- and could not guarantee they would be able to get their purchased items by the holiday.

The move is a considerable blow to an as-yet-undetermined percentage of the many consumers who moved their holiday shopping online this year. For the tens of thousands of people who spent the Black Friday after Thanksgiving shopping for electronics on their laptops, for example, instead of having to sit in freezing temperatures for hours on end to get the best deals, what might have seemed like a brilliant idea just a month ago might not appear so appealing today.

Coming as the latest in growing list of corporate pitfalls that Best Buy has fallen into while trying to define its online presence, the event also reflects badly on the company's management, equity analysts following the retailer nearly universally agreed.

Due to overwhelming demand of hot product offerings on BestBuy.com during the November and December time period, we have encountered a situation that has affected redemption of some of our customers' online orders, Best Buy said in a statement, according to The Associated Press. We are very sorry for the inconvenience this has caused, and we have notified the affected customers.

Best Buy, which had not returned multiple requests for comment from the International Business Times as of press time, did not specify to other outlets the extent of the affected orders or the products not in stock. R.J. Hottovy, an analyst at Morningstar who tracks Best Buy, said he heard it had affected less than 1 percent of online orders.

But that 1 percent was letting itself be heard, lashing out against the company in its official online forum, expressing frustration and even suggesting alternative places to shop online next year.

Merry Christmas indeed, one user, V8Killer, wrote on a thread. My loves [sic] ones will greatly enjoy NOT getting their gifts. I blame myself for trusting BB. Lesson learned.

Behind the curve

Across the board, analysts panned Best Buy, the world's largest consumer-electronics retailer, for the gaffe. Investors have not been happy with Best Buy as of late: On Dec. 13, the company reported third-quarter earnings and revenue results that fell well short of consensus expectations, causing the company's shares to plummet 15.5 percent.

Hottovy, the Morningstar analyst, said the latest slipup is likely due to growing pains from a company beefing up its online presence. But at such a high-profile and high-selling time of year -- the holiday season can account for up to 40 percent of annual sales -- it's a most unfortunate misstep.

In my mind, there are two things, Hottovy said in a phone interview with the International Business Times on Thursday. The company's been behind the curve in being a true player in e-commerce. Their website is behind the big players like Amazon. It's probably a small hit in terms of fourth-quarter numbers.

But it gives consumers that much more reason to explore other channels next year, he added

That increased competition is the last thing Best Buy will need in the future. In its third-quarter earnings report, Best Buy touted its online promotion as a major source of growth for the company, noting U.S. online revenue had jumped about 20 percent in the third quarter when compared to last year.

But facing increased competition from retailers like Amazon, Costco and even Apple, Best Buy ramped up discounts. As a result, profits fell -- about 29 percent.

With increased competition comes margin pressures, and that's clearly showing up in Best Buy's results, Hottovy said.

Hottovy said that although Best Buy was the most high-profile retailer to experience such a pitfall, many smaller retailers have also struggled with the volume of online orders this holiday season, which have reached record levels.

But that could still hurt the company, even if it is part of their online growing pains.

You don't want to give customers a reason to visit competitors, he said. Especially in e-commerce, where it's just so easy. It's the last thing you want to do.

Best Buy shares, closed Thursday at $23.23, up 1.49 percent from the previous day's close.

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